Economic harm – Brexit and COVID

When it was predicted that Brexit would cause long-term harm to the UK economy (before the onset of the pandemic, numerous studies estimated the likely economic effects of Brexit and almost all predicted the impact to be negative in the long term (eg Dhingra et al., 2017; HM Treasury 2016) the predictions were dismissed as ‘project fear’. For years, some have been predicting the end of the EU – but somehow it successfully survives. For anyone who wishes to better understand the real impact on wider UK business and industry of the COVID and Brexit mix, the attached LSE paper is well worth a read.

The executive summary notes:

• This briefing uses real-time data provided by the Confederation of British Industry (CBI) to describe recent trends on a range of firm activities, as well as their expectations for the coming months.

• There was a substantial improvement in the volume of business activity in April 2021 relative to the previous three months. For the first time since the onset of the pandemic, significantly more businesses reported an increase in business volumes than reported a decrease. Expectations for the next three months also improved.

• Real wage growth has fallen during the pandemic. Data suggest that in January 2021 nominal wage growth had fallen by 2 percentage points relative to the previous year, while price growth has remained relatively stable.

• Continued price growth is partly explained by increasing average costs of inputs. In April 2021, 25% more manufacturing firms report increased input costs than firms reporting decreased costs. This difference was 6% in January 2020.

• 24% of firms report that Brexit caused exports to the EU to fall (among exporting firms). 33% report that imports from the EU fell (among importing firms). Smaller firms were more heavily affected.

• 61% of firms, including those in the services sector, report experiencing at least one Brexit related issue. The most prevalent issues relate to the border, with 37% of firms reporting delays, 36% reporting additional customs and administration costs and 22% reporting regulatory checks. 33% of firms report that Brexit has affected their costs or prices.

• 20% of businesses report frictions – i.e. increased trade barriers – moving goods from Great Britain to Northern Ireland.

• The coming months will be crucial for ensuring policy supports a smooth transition back into work allowing economic activity to pick up as expected. Covid-19 and Brexit have caused significant structural changes to the economy; policies to support workers transition across occupations, industries and firms will be important for harnessing growth in productive sectors and businesses. Policies to reduce costs of new regulations and cross-border barriers from Brexit will be crucial for maintaining the competitiveness of UK businesses in the global economy.

Here is the full report

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